Alcoa Corp lowered its 2018 profit projection as tariffs on imported aluminium present what Chief Executive Officer Roy Harvey is calling a “significant” headwind. The manufacturer has been hit with US$15 million so far on material it produced mostly in Canada and shipped to the US. The company also cited higher energy costs and lower aluminium prices for the cut.
The forecast adds to concerns for commodity investors over the potential impact of the tariffs, with metal prices and producer shares languishing amid growing concern that a trade war could hamper economic growth. Harvey zeroed in on the levies slapped on shipments from Canada, where Alcoa was expected to make 28% of its primary aluminium this year, according to Bloomberg Intelligence.
“Everyone assumed as did we that there would be an exception in place for Canadian production, so that has turned out not to be the case and that is a pretty significant impact for us,” Harvey said in a phone interview.
Adjusted earnings before interest, tax, depreciation and amortisation is forecast to be US$3 billion to US$3.2 billion, down from a previous estimate of USUS$3.7 billion, Alcoa said in a statement Wednesday.
Harvey said that while demand remains robust, there are concerns that industrial customers could eventually move operations outside of the US so they can buy metal that’s not subject to the duties.
At the same time, the Pittsburgh-based manufacturer reported higher-than-expected sales and earnings for the second quarter.
“Uncertainty continues to exist in the global supply chain due to U.S. tariffs and ongoing alumina supply disruptions in the Atlantic region,” the company said in the statement.
Aluminium has slipped about 25% from an almost seven-year high reached in April in the wake of U.S. sanctions on Russian producer United Co Rusal.
Alcoa fell 0.9% at 7.10pm after the close of regular trading in New York. The shares declined 11% this year through the close. Century Aluminum Co, the second-biggest US producer, fell 1.6% in late trading.
The company also said it sees a deeper global production shortage in the metal this year as it pared its outlook for excess supply coming out of China.
Demand will exceed supply by 1.1 million to 1.5 million metric tons, Alcoa said Wednesday in its earnings presentation. That compares with an April forecast for a deficit of 600,000 to 1 million tons.